COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

MARUBENI CORPORATION,
respondent.

FACTS:

Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of
Japan. It is engaged in general import and export trading, financing and the construction business. It is
duly registered to engage in such business in the Philippines and maintains a branch office in Manila.

In November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine
the books of accounts of the Manila branch office of respondent corporation for the fiscal year ending
March 1985. In its examination, CIR found that MARUBENI have undeclared income from two (2)
contracts in the Philippines, both of which were completed in 1984. One of the contracts was with the
National Development Company (NDC) in connection with the construction and installation of a wharf/port
complex at the Leyte Industrial Development Estate in the municipality of Isabel, province of Leyte. While
the other contract was with the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction
of an ammonia storage complex also at the Leyte Industrial Development Estate. Thereafter, it assessed
MARUBENI for several deficiency taxes (income tax, branch profit remittance tax, contractor’s tax and
commercial brokers tax)

CIR found that NDC and Philphos contracts were made on a turn-key basis and that the gross income
from the two projects amounted to P967,269,811.14. Each contract was for a piece of work and since the
projects called for the construction and installation of facilities in the Philippines, the entire income
therefrom constituted income from Philippine sources, hence, subject to internal revenue taxes.
MARUBENI appealed the decision with the CTA, contending that it cannot be assessed with deficiency
taxes since it availed of the tax amnesty under Executive Order (EO) 41 as expanded by EO 64. CIR
claims that MARUBENI is disqualified from availing of the said amnesties because the latter falls under
the exception in Section 4 (b) of E.O. No. 41.

ISSUES:
(1) WON MARUBENI is may avail of the tax amnesty under EO 41.
(2) WON MARUBENI is liable to pay the income, branch profit remittance, and contractor’s taxes
assessed by petitioner.

RULING:
1.YES. Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted
thereunder, viz: b) Those with income tax cases already filed in Court as of the effectivity hereof.
Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those
taxpayers with income tax cases already filed in court as of the effectivity hereof. The point of reference
is the date of effectivity of E.O. No. 41. The filing of income tax cases in court must have been made
before and as of the date of effectivity of E.O. No. 41.

Here, E.O. No. 41 took effect on August 22, 1986 while the case was filed by CIR with the on September
26, 1986. When E.O. No. 41 became effective on August 22, 1986, the case had not yet been filed in
court. MARUBENI did not fall under the said exception in Section 4 (b), hence, it was not disqualified from
availing of the amnesty for income tax under E.O. No. 41.

2. NO. Under the law, an independent contractor is a person whose activity consists essentially of the
sale of all kinds of services for a fee, regardless of whether or not the performance of the service calls for
the exercise or use of the physical or mental faculties of such contractors or their employees. The word
contractor refers to a person who, in the pursuit of independent business, undertakes to do a specific job
or piece of work for other persons, using his own means and methods without submitting himself to
control as to the petty details.

A contractors tax is a tax imposed upon the privilege of engaging in business.It is generally in the nature
of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on
products;and is directly collectible from the person exercising the privilege.Being an excise tax, it can be
levied by the taxing authority only when the acts, privileges or business are done or performed within the
jurisdiction of said authority.Like property taxes, it cannot be imposed on an occupation or privilege
outside the taxing district.

In the case at bar, it is undisputed that MARUBENI was an independent contractor under the terms of the
two subject contracts.

Clearly, the service of “design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning, coordination…”of the two
projects involved two taxing jurisdictions. These acts occurred in two countries – Japan and the
Philippines. While the construction and installation work were completed within the Philippines, the
evidence is clear that some pieces of equipment and supplies were completely designed and engineered
in Japan. The two sets of ship unloader and loader, the boats and mobile equipment for the NDC project
and the ammonia storage tanks and refrigeration units were made and completed in Japan. They were
already finished products when shipped to the Philippines. The other construction supplies listed under
the Offshore Portion such as the steel sheets, pipes and structures, electrical and instrumental apparatus,
these were not finished products when shipped to the Philippines. They, however, were likewise
fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made
and completed in Japan. These services were rendered outside the taxing jurisdiction of the Philippines
and are therefore not subject to contractor’s tax.

NOTE:
a. The price of the two contracts were divided into Japanese Yen Portions I and II and the Philippine
Pesos Portion under the two contracts and corresponds to the two parts into which the contracts
were classified the Foreign Offshore Portion and the Philippine Onshore Portion. In both
contracts, the Japanese Yen Portion I corresponds to the Foreign Offshore Portion. Japanese
Yen Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
b. The income derived from the Foreign Offshore Portion of the two contracts that the liabilities
involved in the assessments subject of this case arose.